The specter of below-par economic growth for an extended period looms large, with more and more incoming data pointing to a protracted soft patch. If the economy does not improve adequately enough to encourage fluent consumer spending, the rest of the sectors are unlikely to see salvation from depressed levels. Ironically, anticipating such a scenario, the central bank has resolutely held to the "extended period" phrase in their description of the timeframe for maintaining extremely accommodative monetary policy conditions ever since the recession surfaced.

With the QE II measures set to expire as originally planned by June, economists do not see the possibility of another does of qualitative easing. They are quite right in expecting so. Deflationary conditions have now become a forgotten story, thanks to a strong increase seen in commodity prices, although they have come off notably from their recent peak. More importantly, the economic softness is seen as the handiwork of some transient factors, including natural catastrophes that have severely impaired manufacturing conditions.

Greece has become a millstone around the neck of not only the European nations, but also the global economy as a whole. The Eurogroup ministers, who met Sunday, decided to keep in abeyance a plan to dole out additional financing to the debt ravaged nation due to skepticism over the viability of such an action in permanently solving the crisis. They have in turn favored Greece setting its house in order on its own before any assistance can be extended.

A report released last week showed that U.S. retail sales declined by a little less than economists had expected. The headline number showed a 0.2 percent drop, while excluding autos and gasoline, sales were up 0.3 percent. Core retail sales, which also exclude building materials, rose 0.2 percent.

Inflationary readings revealed an uptick in inflationary pressure. The producer price inflation report showed a 0.2 percent month-over-month increase in wholesale prices for May, while producer prices were up 7.3 percent annually. The core monthly inflation rate was at 0.2 percent, in line with expectations and the annual rate remained unchanged at 2.1 percent. Food prices fell 1.4 percent month-over-month, while energy prices increased 1.5 percent. Pipeline inflationary pressure remains elevated, with core intermediate prices rising a robust 0.9 percent compared to the previous month.

Meanwhile, consumer price inflation rose 0.2 percent month-over-month in May and the core consumer price index was up 0.3 percent, the biggest increase since July 2008. Therefore, the annual core consumer price inflation rate rose to a 1-1/2 year high of 1.5 percent. Food, clothing, motor vehicle, education and recreation all showed price increases.

Manufacturing readings were markedly downbeat. The New York Federal Reserve's survey showed that manufacturing activity in the New York region contracted in June. The headline general conditions index based on the survey fell to -7.8 in June from 11.9 in May, dropping to the worst reading since November. The order backlogs index slipped to 0 from 9.7 and the employment index declined 14 points to 10. On a more negative note, the 6-month outlook index fell to 22.5 from 52.7 in May.

Additionally, the results of the Philadelphia Fed's manufacturing survey showed that manufacturing activity in the region contracted in June. The manufacturing index fell to -7.7 in June from 3.9 in May. The new orders index also turned negative, dropping to -7.6 from 5.4 in May. The order backlog index fell a steep 9 points to -16.3 compared to an 18 point-slump by the employment index to 4.1. The 6-month outlook index also slid to 2.5 in June from 16.6 in May.

Meanwhile, industrial output rose by a less than expected 0.1 percent month-over-month in May, with a 2.8 percent drop in utilities output serving as a big drag. At the same time, mining output was up 0.5 percent. Meanwhile, manufacturing output rose a solid 0.4 percent despite motor vehicle and part production slipping by 1.5 percent. Production of business equipment increased and as did the output of computers, video and audio equipment, appliances and furniture. Capacity utilization remained flat at 76.7 percent.

Housing market readings, although presenting a mixed picture, stuck to the trend of staying at depressed levels. The National Association of Home Builders' housing market index fell 3 points to 13 in June, the lowest level since September. The present sales conditions index declined 2 points to 13 and the sales expectations index fell a steeper 4 points to 14, matching the record low of March 2009. The index measuring prospective buyer traffic also declined, dropping 2 points to 12.

At the same time, the Commerce Department reported that housing starts rose 3.5 percent month-over-month to a seasonally adjusted annual rate of 560,000 in May from an upwardly revised reading of 541,000 for April. Starts of both single and multi-family categories rose. Building permits, an indicator of future starts, improved to 612,000, their highest level since December.

Separately, the Commerce Department said business inventories rose 0.8 percent month-over-month in April. Meanwhile, business sales were up a more modest 0.1 percent.

The FOMC meeting will headline the economic data/events of the unfolding week, which has a fairly light calendar. Additionally, existing and new home sales reports for May, the weekly jobless claims report and the Commerce Department's durable goods report for May could take the center stage.

The Federal House Housing Finance Agency's house price index for April, the final first quarter GDP report and announcements concerning the Treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.

The slack recovery and the modest pick up in core inflationary pressures leave the Fed with little options. While sounding cautious on its growth outlook, the Federal Open Market Committee is expected to reaffirm their commitment to continue re-investing its maturing assets and will likely repeat their extended period language on rates. Federal Reserve Chairman Ben Bernanke is likely to discuss the central bank's revised economic outlook at the post-meeting press conference. Economists widely expect the GDP growth forecast for 2011 and 2012 to be downwardly revised.

Existing home sales are on track for a second straight month of declines in May, given the fact that pending home sales fell 12 percent in April. The possible decline is likely to send inventories higher and prices lower. New home sales are also likely to have declined in May. According to BMO Capital Markets, only better job growth can prop up the housing market.

Durable goods orders could see a small rebound in May from the previous month's retreat. Transportation equipment orders are expected to remain soft. Boeing (BA) has reported aircraft orders of 27 for May compared to 2 in April, although markedly lesser than March's 98.

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